SBJ/August 6-12, 2012/Opinion

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  • The rise and fall of media rights fees

    The $2 billion purchase-price line for a pro sports team has been crossed, and media experts are weighing in on whether this was a brilliant move by the Guggenheim group or a sign that Nostradamus isn’t much of a sports fan.

    The inflation in sports TV rights is not limited to marquee teams. The San Diego Padres recently agreed a 20-year cable rights deal with Fox for $1.2 billion, which represents a 200 percent increase over their last deal. The new agreement isn’t official yet because of issues surrounding the sale of the team.

    Will these mountains of cash continue to be deposited into the bank accounts of leagues and teams? The angel (not from Anaheim) on my right shoulder was smiling when he told me that sports media rights will climb forever. He cited the following:

    • The forces of market competition. Teams and leagues create horse races among the media companies. If they don’t pay, the rights go to a competitor.

    • Subscription fee revenue for programming is DVR-proof and exclusive to TV.

    • Stratospheric sports cable rights are tied to subscriber fees. Critics say that sports rights mania ultimately is paid for by sports consumers through higher cable subscription fees. A broadcast executive once told me that all you need to create a long-lasting and ever more profitable regional sports package is a combination of winter and summer pro sports.

    • Leagues can black out local broadcasts on desktop computers, tablets and mobile devices.

    • With millions of eyeballs and wallets for the taking, we see more outlets trying to get into the local and national sports business. The latest example is NBC’s transformation of Versus into the NBC Sports Network. The platform created for wall-to-wall coverage of the London Olympics is the ultimate example of total media immersion.

    • Live sports is and always will be the opiate of the masses. No matter how bad things get in our daily lives, sports remain unaffected. “You can take my house but please don’t disconnect my cable.”

    “Not so fast,” said the Devil (not from Jersey) on my left shoulder. He wasn’t smiling and his tiny laser pitchfork was pointing to the following reasons.

    • The global financial crisis of 2007-12. The housing bubble that blew up in our faces was caused by a complex witch’s brew of derivatives and credit default swaps, like a deal in which a player to be named later is consummated without the player or the money. It can happen in sports.

    • The $2.15 billion paid to purchase the Dodgers is still raising eyebrows and blood pressures in the boardrooms of media companies that are addicted to sports. If the Dodgers can’t cash in on a record TV deal they could be the poster child for spending future rights fee that never materialized.

    • Privatization. Pennsylvania spent close to a billion dollars in tax revenue to help build two new baseball parks and two new football stadiums in Pittsburgh and Philadelphia. California and its financially strapped municipalities have told team owners to pay for their own playpens. The Oakland A’s and Raiders, San Diego Chargers and Sacramento Kings have been trying for years to figure out how to finance new homes. Only the San Francisco 49ers have a new stadium under construction, for which they are borrowing a billion dollars. No matter how much money you borrow you still have to pay it back.

    • Economic uncertainty. Just when you think we are turning the corner we get bad news. European debt crisis, banking faux pas, high unemployment, housing malaise, cutbacks in social services, and a presidential election with all of its economic uncertainties. Who will be left to spend big money on naming rights, seat licenses and premium seating?

    While speaking at the recent Global Sports Economic Forum, one of sports’ deepest business thinkers had this insight into the future of media-driven sports economics: “It is what it is and it will be what it will be when it is.” That being said, “We should never say never, because even in the world of sports what goes up must come down.”

    Andy Dolich (andy.dolich@gmail.com) has more than four decades of experience in professional sports, including executive positions in the NFL, MLB, NBA and NHL.

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  • Cartoon: High marks

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  • GM’s drama, NFL’s draw and NBC’s Olympic love

    One of the most talked about stories last week was the sudden departure of Joel Ewanick as CMO of General Motors. We’ve written about Ewanick’s role in sports before, so I was surprised by the move, especially with the reported reason: that he didn’t fully vet the company’s recent sponsorship deal with Manchester United. But his exit came a day before the company formally announced a new deal that included a shirt sponsorship with Man U that was reported to be worth $60 million to $70 million a year over seven years, and was said to be renegotiated amid Ewanick’s departure. That’s the part that had people talking. As one source said, “The fact that Ewanick could do a seven-year, $600 million deal without sign-off from the top is mind-boggling. If he could do that, then something is wrong with GM’s internal policies.” Another added, “Didn’t realize how much he paid Man U. Amazing that GM execs were able to renegotiate the deal.”



    We all know the NFL’s offseason has been filled with controversy. But early numbers portend that fans aren’t turned off. The Patriots opened training camp July 26 with more than 12,000 in attendance in Foxboro. For practice. That easily marks a single-session record, and is a far cry from when I’d sit on a hill overlooking football fields at the University of Massachusetts in Amherst to watch the hapless team run drills in the early 1970s. But it’s not just in New England — look around at some other numbers: A record crowd estimated at 14,500 attended the NFL Cardinals’ practice in Flagstaff, Ariz. An estimated 10,000 to 15,000 attended the Bears’ first padded practice of training camp in Bourbonnais, Ill. A record crowd of 5,715, a sellout, attended the Texans’ practice at the team’s Methodist Training Center. Each of the team’s practices opened to the fans were sold out. What does this tell us? There is an unquenchable desire for fans to be close to the NFL, for getting inside the game and having access to players, coaches and “the action.” With many revenue streams mature, teams have to try to monetize this not just through on-site opportunities but also digital programming.



    My window to the Olympics always starts with the “Today” show. In monitoring news coverage at SportsBusiness Daily, we see “Today” morph into a two-week infomercial for the Olympic Movement every two years. It’s flag-waving (U.S. only) and cheerleading at its core. I am not being negative; I find parts of it interesting and informative, but more of it mind-numbing and cringe-worthy. But give them credit: NBC doesn’t go through the motions or fake it. Nary a negative word is ever said, and it is obvious that Matt Lauer and cohorts really love the Games. NBC and its talent team are “all in,” and I kept thinking how this surely made a difference when the company made its successful bid to IOC officials last year in Lausanne, Switzerland.



    Summer fun: Roger Waters’ “The Wall” performance was a highlight. Great theatrics and sound. Yes, I know it should be with the vocals for the 68-year-old Waters clearly piped in at times. … I’m enjoying HBO’s “The Newsroom.” It is well-acted, especially Jeff Daniels as anchor Will McAvoy and Emily Mortimer as producer Mackenzie MacHale. Some feel it’s too preachy and heavy-handed. If you’ve been watching, what do you think?

    Abraham D. Madkour can be reached at amadkour@sportsbusinessjournal.com.

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  • Age minimum could have significant impact on hockey

    The NHL and its players union have begun their labor negotiations for a new contract. The current agreement expires in September, and while details have been sparse, so far the negotiations appear to have focused primarily on economic topics such as revenue sharing and free agency. One issue that has not yet surfaced, though it easily could, involves the concept of age minimums for participation — meaning that a player could not play in the NHL until he attains a certain age (for example, 21). Currently, the NHL generally permits 18-year-old players to participate in the league if they can earn a roster spot, but that could change if college hockey can influence the negotiations.

    Both the NFL and NBA have rules that function as age minimums — 21 for the NFL and 19 for the NBA. Ordinarily, price-fixing agreements and artificial barriers to competition like these would violate U.S. antitrust laws. This does not work with a labor union in the picture since unions and management necessarily have to agree about wage rates and other important terms and conditions of employment. Further, according to the theory, unions have an obligation to negotiate at arm’s length with employers or their members will eventually dump them as their collective-bargaining agent or sue them for a breach of their duty of representation (or both). So, there is no perceived need for antitrust protection against anti-competitive rules or restrictions in professional sports that result from the product of bona fide labor negotiations.

    NCAA football and basketball have benefited tremendously from their pro games’ age minimums because they essentially force players into college athletics. These rules basically give the pro leagues a free developmental system as players mature and develop at no cost to the pro teams. And the players unions seemingly have no real interest in opposing age minimums because their current members presumably do not want to have to compete against talented teenagers for jobs.

    Unbeknownst to most hockey observers, the commissioners of the U.S. college hockey leagues have formed an organization called College Hockey Inc., which has the stated goal of trying to raise the profile of college hockey and to encourage more players to choose college hockey over the Canadian Hockey League. The CHL has long been considered the fast track to pro hockey. Players participating in the CHL receive a small salary to cover their living expenses, and for this reason, the NCAA considers players participating in the CHL no longer amateur athletes and deems them ineligible for college hockey (with a few exceptions). Accordingly, young hockey players in North America typically have to choose between college hockey and the CHL at an early age.

    More importantly, College Hockey Inc. also has said it wants to stem the tide of hockey players leaving college early for the professional ranks. Already this summer, 29 players have left college and signed professional contracts. In reference to the number of early departures, the former director of College Hockey Inc. has said that the group has met with the NHL and that “[i]t was a meeting both sides wanted to have.” College Hockey Inc. wanted to make sure it was involved in the labor negotiations so that its interests were a part of the dialogue. The powers that be in college hockey are clearly exploring a way to keep players in college, and the only real way to accomplish that would be to include an age minimum for participation in the NHL’s next labor contract.

    An NHL age limit might have kept Sidney Crosby in a Rimouski Oceanic uniform a few more seasons.
    Photo by: GETTY IMAGES
    Conventional wisdom suggests that the CHL would strongly oppose an age minimum for participation in the NHL since the CHL would lose its perception as the quicker route to the NHL compared to the college game. But would the CHL really put up that much of a fight? The CHL generally permits players to participate only until their 20th birthday. Accordingly, the CHL has the same financial motivation to keep their teenage stars as college hockey does. Imagine if Sidney Crosby had to play an extra season or two in the CHL — you would not find an empty seat in any rink where he played.

    While players could still leave the CHL or college hockey and go directly to the minor professional leagues since the labor exemption from antitrust law would not allow the NHL to restrict participation in other leagues, the money in the minors is nowhere near NHL money, and players would not have the same financial incentive to leave. Plus, the NHL wields an enormous amount of power and influence over the minor professional hockey leagues, and especially over the young draft picks. If a drafting team tells a player the best situation for him is to stay put and play in the CHL or college hockey to continue to develop, he will most likely do so to please his prospective employer.

    Although a minimum age for participation rule has not yet been proposed in the labor negotiations, there is a real possibility that it could, particularly if College Hockey Inc. and its constituency have their say and the wherewithal to influence the talks. While the justification given for age minimums in pro football and basketball is the physical and emotional immaturity of the teenage athletes, that explanation rings hollow in pro hockey. Teenage NHLers have been competing and flourishing in the league for decades, or at least have been no worse off than their older counterparts. But a more troubling byproduct of an age minimum in the NHL would require teenage players to continue to play in their developmental leagues and risk a possible career-ending injury before signing the lucrative contract they have worked for many years to attain.

    With a seasonlong work stoppage in recent memory and by all accounts an aggressive bargaining posture by the NHL, the seemingly more minor contract issues (like an age minimum) could easily fly under the radar. Ultimately, we may have to wait until the deal is done to see if an age minimum found its way into the new labor contract.

    Mark Wilkinson (msw@franczek.com), an attorney at the Chicago law firm Franczek Radelet, represents private and public sector employers in all aspects of labor and employment law. He played four years of Division I hockey at Western Michigan University.


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  • Proposed legislation has sports business in crosshairs

    Two recent legislative attempts, one local and one national, caught my attention because each one could have a dramatic impact on sponsorship revenue and, ultimately, the ability of corporations and other business entities to choose how they communicate to their target markets through sports and entertainment. Regardless of whether either eventually passes, the sports industry has to realize that it is being targeted and will be held much more accountable going forward.

    In Washington, D.C., U.S. Reps. Betty McCollum (D-Minn.) and Jack Kingston (R-Ga.) sponsored an amendment to the 2013 defense appropriations bill to block military branches from sponsoring race teams. Many assumed this was limited to auto racing, but the amendment stipulated that none of the funds made available in the bill would be used to sponsor professional or semi-professional motorsports, fishing, mixed martial arts, wrestling, or other sporting events or competitors. The last catch-all should make everyone involved in selling and activating sponsorships uncomfortable and more than a little afraid. There are exceptions, most notably high school sports, so it would seem that the representatives have some idea of what a target market is. Thankfully, the legislation failed, but the vote was very close, splitting 216-202.

    The Army’s marketing support director said the proposed amendment had nothing to do with its decision to sever ties with Stewart-Haas Racing after this season, but if lack of ROI was really the reason, wouldn’t the Army’s marketing agency have pulled out long before now? Who better to assess the effectiveness of the agreed-upon events and activities in terms of their ability to attract recruits than the recruiters of each branch of the service?

    National Guard has indicated that it will continue its sponsorship with Dale Earnhardt Jr.
    Photo by: GETTY IMAGES
    Anyone who has seen the Army set up at a sporting event realizes that it is much more than the branding of a car; it is the activation with the trailer, the obstacle course or climbing wall, and the interaction between the recruiters and the potential recruits that lies at the core of the sponsorship. The key is the communication and the interaction; the car is just one part of the equation.

    The National Guard has indicated that it will continue its sponsorship in NASCAR, allocating more than $26 million on its 16-race program with Dale Earnhardt Jr. “Television advertising no longer carries the payoff it once did,” said National Guard President Gus Hargett Jr. “Today, you have to know how smart, fit young people think, where they live and play, and go to them.”

    Hargett continued: “We applaud lawmakers … for asking tough questions about how and where scarce defense dollars are spent. But we believe military marketing experts should evaluate return on investment and determine without restriction where best to put increasingly scarce recruiting dollars.”

    Logic such as that makes it hard to hear that applause doesn’t it? Simply stated, ROI is the gold standard for evaluating most types of spending and investment. We don’t need legislation to determine if it works.

    The second piece of legislation has a very good intention at its core, but it is packaged within an overt attempt to legislate behavior and unfairly singles out the soft drink category, which has been a staple of sports sponsorship inventory since the days of Ty Cobb. I am speaking of New York City Mayor Michael Bloomberg’s attempt to combat rising obesity (the good intention) by banning the sale of sugary drinks in excess of 16 ounces (this is the discriminatory behavior). Bloomberg has previously championed a series of health-related regulations such as banning smoking in restaurants and parks and prohibiting artificial trans fat in restaurant food.

    My criticism of the legislation is not its intent, which is to fight obesity, but its target, which is solely the soft drink industry. Bloomberg is not seeking to eliminate the sale of soft drinks, just eliminate the sale of soft drinks of 16 ounces or more, which are commonly sold at sporting events, concerts, movie theaters and so forth. What about other “larger portions” of other foods deemed as contributing to obesity? Will Dunkin’ Donuts be permitted to sell only munchkins? Will KFC have to reduce the number of pieces of chicken in its famous bucket? Will we limit the size of a pizza that can be delivered for lunch?

    The answer is, of course not. It would be ridiculous and it cannot be controlled — which is exactly the point. Bloomberg acknowledges that drinks with free refills can be purchased, or that a person can purchase multiple beverages of less than 16 ounces at the same time.

    Why and where will it stop? Will products high in sugar content be treated similarly to cigarettes and nicotine? Could they be banned from advertising on television, or purchasing signage in arenas, or sponsoring promotional giveaway items?

    Instead of banning the sale of large soft drinks, why not take the approach of the tobacco and alcohol industries and begin allocating a portion of their revenue to support consumer groups and educate the population on the dangers of overconsumption? Why not take some of these profits and invest them in hiring P.E. teachers in schools where these programs have been eliminated?

    Sports organizations need to work with their soft drink sponsors to draw attention to obesity and to fight it through increasing awareness and understanding, and most of all through increasing fitness via activity and exercise. Obesity is a major issue among children, but sugary drinks are only a piece of the puzzle. One can also point to too much time on the couch, school budget cuts, poor role models when it comes to nutrition — and the list could go on and on.

    Let’s take a big gulp (sorry, couldn’t resist) of fresh air, get to work on solving the core of the problem, and put our dollars where our mouths are.

    Bill Sutton (wsutton1@usf.edu) is the founding director of the sport and entertainment business management MBA at the University of South Florida, and principal of Bill Sutton & Associates. Follow him on Twitter @Sutton_Impact.

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